According to Moody’s Investors Service, declining demand, weaker gas prices and the roll-out of offshore wind will keep wholesale electricity prices in the UK close to current levels through 2020. However, the rating agency notes, an accelerated decline in electricity demand could cause prices to decline.

“We believe that widely expected tightness will be short-lived as energy-efficiency gains, the roll-out of offshore wind power and the return of mothballed gas plants will keep prices in check”, said Scott Phillips, Moody’s Vice President and Senior Analyst. “Our view is that power prices will stay around current levels, or GBP48-53/MWh, through the end of the decade”, added Mr Phillips.

The new report “In the UK, Utilities Face Rising Regulatory and Political Risk and Flat Power Price Environment” is now available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release. This paper is part of a series on European electricity markets recently published by Moody’s. The series includes papers on the overall European unregulated utility sector, as well as individual electricity markets in Spain, France, Italy, Germany, the United Kingdom and the Nordics.

Moody’s expects that pressure on the profitability of gas-fired plants will continue, but coal plants should fare better. SSE plc (A3 negative) is in a better position than Centrica plc (A3 RUR-D) given its greater proportion of coal and renewable generation, as well as its regulated operations. Centrica is particularly exposed because of its ownership of gas plants but also its sizeable exploration and production operations, which will be hurt by weak natural gas prices. As a mainly fixed-cost generator, the effect on Infinis plc (Ba3 stable) will be more muted.

Moody’s notes that rising consumer energy bills, a fierce debate about the increasing cost of living and the fast approaching General Election means that the political and regulatory risk environment for UK utilities remains challenging. Given the conflict between the cost of decarbonisation and affordability, these conditions are set to persist. Whilst measures have yet to be introduced that have negatively affected utility profitability, Moody’s sees potential for this to change. As the largest UK utility, Centrica is more exposed than SSE.